Any contractor buying their first home wants to understand how to get a good mortgage deal. It helps to explore lenders that are contractor friendly, improve your credit history and save up a good deposit.
Tips for First Time Buyer contractors
If you are beginning to think about buying a home, it pays dividends to get organised in advance.
The first step is to look at your finances. Work out how much deposit you can realistically put down against a house, allowing for all the additional expenses – from legal costs and surveys to buying furniture and redecorating. Use a mortgage calculator to explore monthly repayments for different types of mortgage.
Next, gather all the financial records you’ll need – bank statements, tax returns, recent contracts and company accounts.
Finally, take a look at your credit rating and find ways to improve it if necessary. Ensuring you’re on the electoral roll is an easy way to improve your score.
It really pays to have an Agreement in Principle from a lender when you start viewing properties. That way you’re seen as a credible buyer and are more likely to have an offer accepted. A Mortgage Broker can guide you through these steps and advise you accordingly.
How do I find the most appropriate mortgage?
Different lenders have varying attitudes towards Self-Employed people and contract workers when it comes to a First Time Buyer mortgage.
Every lender wants to be certain that you are able to meet remortgage payments comfortably. To get a good mortgage offer, you will need to show the lender that your income is reliable.
There are a few ways lenders will assess your income in calculating a mortgage offer – and some will take your contracting day rate, while others will look at your annual pre-tax earnings.
How much will I be able to borrow?
Lenders in the United Kingdom will usually give you four to five times your annual income in a loan. For a contractor it could mean that your loan amount depends on your business performance in the past year or two. Other lenders may be more interested in the contract you have at the moment, what it’s worth and how long it will last.
It’s important to compare Mortgage Providers to find the offer that will work best for you.
How are contractors assessed by mortgage lenders?
Lenders assess contractors’ mortgage applications in different ways, and how your business is set up is important too.
Contractors working as a sole trader
Sole traders usually need to supply one to three years’ self-assessment forms, as these state your annual income. If your income varies a lot from year to year, they will take an average figure.
Fixed term contractors on PAYE
If you’re a fixed term contractor on a monthly salary, a lender will often approve you based on your day rate. You will usually have to prove that you’ve been contracting for at least six months and you have at least another six months left on your current contract.
Limited Company contractors
If you run a Limited Company lenders will probably want to see one to three years’ certified financial accounts. Most will take your income as the stated salary plus dividends, but some will include the net profit in your business too.
Contractors working for an Umbrella Company
You might work for an umbrella company, in which case lenders will ask about your working history. It helps if you’ve had your contract renewed with the umbrella company.
How can I get the best rates?
As with any First Time Buyer, the bigger the deposit you put down, the better the lender’s offer. A 10% deposit is the average, but if you can reach 15% or even 20% lenders will offer you better interest rates.
Comparing lenders is essential to make sure you’re getting the best deals. Explore both high street and specialist companies’ rates and fees – or get a broker to do that on your behalf.
Can a Mortgage Broker help me get a Contractor Mortgage?
As experienced professionals who specialise in mortgage advice, it’s our job to take the stress out of getting a mortgage. Many lenders offer mortgage products for contractors, so we’ll explore your specific situation and find the most competitive deals on your behalf.
Purely Financial Planning Ltd is an appointed representative of PRIMIS Mortgage Network, a trading name of Personal Touch Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority and registered in England. Contact our registered office for an initial chat today.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.